GCC Banks Face Limited Direct Effect From Trump Tariffs Says Fitch Ratings Report 

The reason the direct effects are minimal is because the main GCC exports to the US are hydrocarbons, which President Trump has exempted from duties.  

As the world complains of the heat from the Trump Tariffs, the Gulf Cooperation Council (GCC) seems to be the exception to the rule. While there is no complete exemption, the GCC Bank is reportedly facing limited direct effects from the US tariffs. However, the indirect effects are numerous and could result in lowered government spending due to declining oil prices and slow economic activity. 

The reason the direct effects are minimal is because the main GCC exports to the US are hydrocarbons, which President Trump has exempted from duties. Other taxable exports face a relatively lower tariff, which is 10% or 25% on goods like steel or aluminium. 

The GCC bank operating environments’ main threat is from falling oil prices and global demand. In most GCC countries, bank operations are greatly impacted by government spending and Fitch Ratings speculates that should oil prices dip lower, lending growth forecasts could weaken. 

Fitch lowered its global gross domestic product (GDP) growth forecast to 2.3% in 2025 and 2.2% in 2026, as increased economic risks are causing this downward trend. If GDP falls, it will put pressure on global commodity prices, including hydrocarbons which account for most of the GCC’s revenues. The performance of oil exports dictates the economic activity and the banking sectors, through government spending in the Gulf countries. 

Market imbalances and oil prices will be influenced by global economic performance as well as OPEC+’s supply management, which as of January holds over 6 million barrels per day in spare capacity. The oil-producing group has also announced its plans to gradually increase supply from this month. 

Before these tariffs were announced, Fitch had estimated non-oil GDP growth for the GCC at over 3.5% for 2025 and 2026. However, for these petroeconomies, the slightest variations in oil prices have a significant bearing on non-oil economic performance as well. Therefore, if oil prices continue to fall, it could lead to lowered budget revenues, adversely impacting the non-oil economy and constricting government spending. World Bank data suggests that a weaker global economy will pull down commodity prices, especially hydrocarbons, which comprise 60-90% of GCC revenues. 

Growth forecasts are being lowered across the globe, with the IMF also revising its global growth outlook to 2.4% for this year, owing to trade disruptions. Reduced government spending will result in shrinking lending growth prospects for GCC banks, which, according to Fitch predictions, are hovering at their 2024 levels. 

If corporate operations in tariff-vulnerable sectors report weaker gains and thinner cash flow, credit conditions of GCC banks will worsen as operating costs and inflation peak. Corporates are also at risk of higher debt costs due to fluctuating interest rates and potential delays in US Federal Reserve rate cuts. This pressure can negatively impact overall credit demand and increase credit risks for banks, by which a bank’s asset quality comes under question. Analysts are warning that non-performing loans could increase if corporates report a struggle, which will pinch bank balance sheets. 

However, despite these risks, all hope is not lost, and GCC banks remain resilient and capable of withstanding operational shocks. The earnings in the past few years thanks to higher oil prices, interest rates and strong economic activity have helped banks solidify their capital buffers. Fitch has identified Bahrain as the most vulnerable while Saudi Arabia, the UAE, Kuwait and Qatar have received more favourable ratings for their credit profiles. 

The UAE and Saudi Arabia’s sustained efforts to diversify their economies have certainly placed them in a safer position to weather any tariff storms, but financial analysts remain wary that a sustained drop in oil prices can cause significant damage to the GCC countries. While the global economy is clouded by uncertainty, GCC countries are making every effort domestically and internationally to shield themselves from the adversities these tariffs are bound to bring.